South Korea Tax Agency Orders Crypto-Tracking System With Real Estate Funding Analysis

South Korea’s National Tax Service has begun work on a system to trace funding flows from virtual assets, or cryptocurrencies, used in real estate purchases. The move is aimed at closely examining whether crypto-based funds, long cited as a blind spot in taxation, were used for gifts or tax evasion.

The National Tax Service recently issued a contract to build an “integrated virtual asset analysis system” and required it to include a real estate transaction analysis function, Herald Business reported on April 28. The report said the system will focus on separately identifying cases in which profits from virtual assets were used to buy property and verifying whether taxes were avoided.

A key function of the system is to review the source of funds and analyze money flows in the acquisition and transfer of real estate. It will be designed to cross-check those flows by linking domestic and overseas real estate acquisition records, integrated annual taxpayer data and overseas financial account filing data.

The tax agency plans to use the system to screen for real estate purchases with unclear funding sources and, if necessary, take follow-up steps including gift tax assessments. Under current rules, taxes may be imposed under the inheritance and gift tax law if the income source behind acquisition funds cannot be confirmed.

The National Tax Service has so far verified funding sources through tax investigations into real estate purchases. But its existing electronic network did not include crypto-related data, limiting its ability to trace such transactions. The new system is intended to close that gap.

The agency is also running training programs to strengthen its investigative capabilities. On April 22, it disclosed preliminary procurement specifications on the Korea ON-line E-Procurement System for outsourced “specialized training in virtual asset transaction tracing.” The program covers blockchain transaction analysis, identification of tax-evasion patterns and collection of data evidence. The report added that it also includes on-chain analysis techniques for tracing fund flows routed through decentralized finance, or DeFi, and mixing services.